The projected solvency ratio of Ontario’s defined benefit pension plans declined in the second quarter of 2022, according to a new report by the Financial Services Regulatory Authority of Ontario.
In its quarterly report, the FSRA found the median projected solvency ratio reached 110 per cent on June 30, 2022, down two per cent from March 31, 2022. It’s the first average solvency decrease registered by the regulator since March 31, 2020.
“After eight consecutive quarters of steady improvement in the median solvency ratio since March 2020, a majority of pension plans saw a slight decrease in the solvency funded status in the second quarter of 2022 as asset losses surpassed shrinking liabilities,” said the report.
The regulator also noted a decrease in the number of DB plans with solvency ratios below 100 per cent. By the end of the quarter, 79 per cent were fully funded, down from 85 per cent in the previous quarter. In addition, the percentage of pensions with solvency ratios below 85 per cent increased from two per cent of all Ontario DB plans to three per cent.
The decline in DB plan solvency was driven by cross-sector net losses averaging 10.9 per cent. In the previous quarter, average losses were also negative, reaching 16 per cent. Despite the losses, the FSRA said the funded levels of pension plans is generally healthy.
“Actions from the Bank of Canada resulted in increased solvency discount rates to a level not seen for over a decade. The higher discount rates contributed to reducing plan liabilities which largely offset the impact of declining capital market values over the quarter.”